D&O is a policy companies purchase to protect their board assets from a spectrum of lawsuit types.
Directors and officers insurance is a type of liability coverage for businesses covering its directors and officers against lawsuits alleging that a breach of fiduciary duty has occurred.
This coverage lets a company’s leaders function without fear of personally suffering a financial loss.
At its most basic level, a directors and officers insurance policy provides liability coverage that is payable either directly to those company leaders or to the business itself. The policy’s payment provides reimbursements for settlements or for defense costs occurring as a result of claims that are covered by the policy.
Though this type of policy is not critical to every type of business, it is something that every company should consider when putting together their insurance coverage package. Though this is vital to larger companies, many mid-sized or even small businesses can benefit from the added layer of protection it provides. Companies and organizations that could suffer accusations of financial mismanagement are particularly likely to want D&O coverage.
Many companies also purchase directors and officers insurance to appeal to top-level leadership.
Having a D&O policy in place is a good first step for companies that are seeking to appeal to high-level leadership and executives. The reason is that experienced execs typically won’t even take an interview with a company that hasn’t got this type of coverage.
It’s easy for privately-owned small businesses and start-ups to think that they aren’t big enough to need a D&O insurance policy as they typically feel that they are too small to suffer a claim of that nature.
That said, according to a 2016 Chubb study cited in an Embroker report, over 1 in 4 private companies experienced a legal incident over the prior 3-year period that would have been covered by a typical D&O policy. Moreover, among the respondents in the study that reported not having directors and officers insurance in place at the time of the accusation, the average loss approached $400,000. This helps to illustrate the difference the coverage could make at a time that would otherwise be financially catastrophic to a small business.
